City Lawsuit Payouts: Creative Budgeting?

Cash strapped Oakdale is spending a mound of money on civil lawsuit settlements and using some creative ways to pay off the litigant settlements and the associated attorney fees – over $800,000 –from the actions of city employees that brought on the lawsuits.

An analysis by The Leader uncovered not only the known amounts the city is disbursing, but the inventive bookkeeping the city used to fund and settle the discrimination suits filed within the city’s embattled public works department.

While the city is claiming the sewer and water enterprise funds are falling short, a gap of at least several hundred thousand dollars last year, and the need for a user rate hike on the horizon to cover sewer and water costs, The Leader has learned that the lawsuit payouts and legal costs from two recent settlements were made out of these stripped restricted use accounts.

Litigation And Costs

In 2008, former city worker William Moffitt filed a lawsuit against the city alleging racial discrimination, harassment, a hostile work environment, and retaliation. Moffitt, an African-American, claimed he was forced to resign from his position as an equipment operator after having to tolerate racial slurs by co-workers and superiors and being threatened with a gun by a co-worker in the employee lunchroom. The final straw, according to the lawsuit, was when a group of public works employees formed a pool on how soon they could get Moffitt to leave his position.

According to filed court papers, the city attempted to explain the gunplay as common and “Oakdale is a town of hunters and firearms were brought into the workplace…”

In March 2011, the city settled with Moffitt at a cost of $185,000 and had $254,000 in legal fees from that one action.

Last month, Oakdale also settled a lawsuit filed by Public Works Supervisor Mark Ozbirn who was also a litigant against the city and claimed he was snubbed and demeaned by city leaders after he defended Moffitt.

Oakdale paid Ozbirn $220,000 to resolve his matter as well as had legal costs over $143,500 defending the suit.

Special Accounts Raided

“I don’t know how Mr. Moffitt was paid because I wasn’t here at the time,” said City Manager Bryan Whitemyer when asked to confirm if the legal and settlement costs came out of the special enterprise funds. “But yes, the Ozbirn money came out as a 50-50 split between the sewer and water (enterprise) funds.”

According to Whitemyer, none of the settlement money or attorney fees to defend the action were paid out of the general fund. Further research showed the Moffitt settlement and associated costs were also a 50-50 division between the same two enterprise funds.

Whitemyer explained that since the involved employees were public works employees, and their salaries can or were drawn from these accounts, it was deemed by city officials as a result of activities to the enterprise funds and the payouts and legal fees were drawn from there so not to affect the general fund.

“It’s typical that expenses in association with enterprise funds are charged to enterprise fund accounts,” said Whitemyer

A review of the 2005-2006 (when the allegations occurred) city budget and both enterprise fund accounts did not show that either Moffitt or Ozbirn’s full salaries were derived from these funds.

In July, when the Leader explored the city’s use of enterprise funds in an earlier article, a public information request for a mandated cost of services and cost allocation plan was filed for those accounts. The city responded that the last study was done in 2009 and did not include calculations on worker time allocations.

Legal Authority?

With the city paying out over a quarter-million dollars from these funds for employee initiated lawsuits, and now subjecting rate users to a fee hike, it raises the question if the spirit of Proposition 218 and the laws surrounding enterprise fund usage is being violated by city officials.

In November 1996, California voters passed Proposition 218 to establish rules for raising fees and taxes in the state. The initiative ensured municipalities could not shift the cost of providing services under its general fund to utility ratepayers. In essence, the City of Oakdale cannot charge ratepayers more than the cost of providing and delivering the actual utility services, nor can they use revenue from ratepayers for non-utility purposes – such as employee discrimination lawsuits.

With the lawsuit settlement and fees being grabbed from “enterprise funds” ratepayers get charged more than the actual cost of providing utility services.

In May 2012, Interim City Manager Greg Wellman indicated that the city was without any insurance coverage and basically was “self-insured” when it came to legal matters. He was critical of the city for not having a more organized action plan for litigation awards.

“That (self-insured) is the last place you want to be,” Wellman said at the time.

At the Monday night city council meeting, March 4, Whitemyer announced that the city is now part of the Intergovernmental Risk Management Agency (IRMA) and that in the event of future lawsuits, the city would have liability coverage.

Because the actions of the suits occurred before Oakdale was part of IRMA, the coverage does not apply.

The Oakdale Public Works Department has been besieged by recent problems of not only the discrimination lawsuits, but morale issues and a city plan to look into privatization of their services. In 2012 the city laid off City Engineer Dave Myers and fired Public Works Director Joe Leach.

Last year the city also fell short in its wastewater treatment plant loan payment of over $800,000 paying only a partial portion of the loan. The city also failed to have the required $850,000 in reserve of the enterprise account for the debt.